Cindy Fern, with Ticor Title in Orange County, California, received a recording package from an independent escrow company for a sale transaction. She prepared the preliminary report for the sale price of $1,260,000.
The buyer was obtaining a new loan in the amount of $893,000 and the lender expected a new loan policy insuring their lien position. The seller was a limited liability company (LLC). Cindy requested copies of the organizational documents to ensure the person who signed the deed was in fact the authorized signer for the LLC.
Cindy checked the California Secretary of State (SOS) website to confirm the LLC was in good standing. Next she compared the names listed in the Operating Agreement and Articles of Organization with the names shown on the SOS website and to her surprise none of them matched.
Cindy went a step further and ran a search in the public records looking for other properties owned and sold by the same entity, and several matches came up. She compared the names and signatures on the other found deeds, with the deed she was being asked to record. All the other deeds were signed by the managing member named on the SOS website — not the person who signed her deed.
Cindy was not comfortable closing this transaction. She took one more step and searched the internet for the contact information of the LLC. She found a website for the LLC which included the names and biographies of the names listed on the SOS website. She called the phone number on the website and left them a message.
While she waited for a return call she consulted with underwriting who agreed with her findings. They elected to resign from the transaction. Cindy rejected the lender's wire and notified the escrow officer the Company elected not to insure the transaction.
The next morning she received a return call from the real managing member of the LLC who confirmed her suspicions were all true. He confirmed the names found on the SOS website are all still correct and they did not even know the names from the entity documents she was given. The manager confirmed the property which was the subject of this transaction was not for sale.
This real LLC regularly purchases real estate, rehabs the properties and sells them — but this property was not yet ready for sale. The manager was very concerned they might be a target of these fraudsters since they own and hold onto properties, free and clear of liens for months at a time. For example, this property was purchased in March 2016. The manager thanked Cindy for her call and hung up.
The lender called Cindy to thank her for stopping the deal. They were so grateful. The buyer's real estate agent called trying to figure out the buyer's next step as they deposited $500,000 towards their down payment and closing costs with the escrow company. Cindy directed the agent to the escrow company.
Guess who did not call Cindy back? The escrow officer. Cindy received no response whatsoever from the escrow officer. They never asked her why Ticor Title resigned. They never even asked for any of the original documents back. Cindy never had any contact directly with the seller but it appeared the entity documents were completely fabricated.
Cindy also found an open order to insure the sale of the same property with Lawyer's Title. She was able to share her findings with them so they did not insure the fraudulent deed either. The property was flagged in the title plant to prevent any other FNF Company from insuring.
For Cindy's attention to detail and determination in confirming whether or not the deed was executed by the authorized signer for the LLC, she will receive a reward of $1,500 and a letter of recognition on behalf of the Company.
MORAL OF THE STORY
The Company has terrific guidance in place for settlement agents and title officers to gather and review entity documents to ensure the paperwork is properly executed. Be sure to obtain the entity documents as soon as possible so everyone gets a chance to review them.
Use the other tools available such as the internet. In this instance Cindy was able to confirm her suspicions were true by searching online for the true owners.